Peak Oil: Are We In The Eye Of The Storm?

U.S. unconventional oil production soared by some 3.3 million barrels a day (b/d) in the last four years, and, if the US Energy Information Administration is correct, is due to climb by another million b/d or so in 2015. While this jump in production was unexpected by most, it was just another phenomenon resulting from unprecedentedly high oil prices, which in turn resulted from the lack of adequate “conventional” oil production. As is well known, economic development can have major reactions and feedbacks.

What is so interesting about all this is that a temporary surge in what was heretofore a little-known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation. The simple answer is that except for the U.S. shale oil surge, almost no increase in oil production is taking place around the world. No other country as yet has gotten significant amounts of shale oil or gas into production. Russia’s conventional oil production seems to be peaking at present, and its Arctic oil production is still many years, or perhaps even decades, away. Brazilian production is going nowhere at the minute, deepwater production in the Gulf of Mexico is stagnating, and the Middle East is busy killing itself. On top of all this, global demand for oil continues to increase by some million b/d each year – most of which is going to Asia.

If we step back and acknowledge that the shale oil phenomenon will be over in a couple of years and that oil production is dropping in the rest of the world, then we have to expect that the remainder of the peak oil story will play out shortly. The impact of shrinking global oil production, which has been on hold for nearly a decade, will appear. Prices will go much higher; this time with lowered expectations that more oil will be produced as prices go higher. The great recession, which has never really gone away for most, will return with renewed vigor and all that it implies.

An additional factor which has grown considerably worse in the last ten years is climate change, largely brought about by the combustion of fossil fuels. We are already seeing global weather anomalies with record high and low temperatures and record floods as well as droughts. This too will take its toll on economic development as mitigating this change will soon become enormously expensive. We are already seeing migrations of restive peoples. Thousands are dying in efforts to get from the Middle East and Africa into the EU. Millions are already homeless across the Middle East and recent developments foretell hundreds of thousands if not millions more being added to ranks of refugees as decades and even centuries-old political arrangements collapse.

All this is telling us that the peak oil crisis we have been watching for the last ten years has not gone away, but is turning out to be a more prolonged event than previous believed. Many do not believe that peak oil is really happening as they read daily of surging oil production and falling oil prices. Rarely do they hear that another shoe has yet to drop and that much worse in terms of oil shortages, higher prices and interrupted economic growth is just ahead.

We are sitting in the eye of the peak oil crisis and few recognize it. Five years from now, it should be apparent to all.

Its not like we are in the eye of the storm—its more like we are at the top of a cliff. Once the shale oil revolution starts to peter out, its all downhill for oil production.

eugene on Thu, 25th Sep 2014 7:10 pm

Makes me remember the yesteryears of drug consumption. reality avoidance is such a pleasant thing. Unfortunately or fortunately, in the end, reality always wins.

jmb on Thu, 25th Sep 2014 7:30 pm

“If we step back and acknowledge that the shale oil phenomenon will be over in a couple of years.”
The peak oil scenario is not working out the way I expected it would, and I’ve needed to revise my expectations. Well, if shale peaks in a couple years we should go onto a “shale plateau” which will stall out the decline for a few years. So it may not be apparent in five years. I’m sure I heard that said five years ago.
There is another dimension to the peak oil equation that’s not discussed much. It’s about who has access to the remaining oil, and who can pay for it. All the other countries in the world have to pay for their oil in $s. They have to exchange their currencies for $s. That means they their currencies must maintain their value or they couldn’t buy much oil. They have to produce and also cut their consumption at the same time to maintain their currencies. The US doesn’t have to do this. We stimulate our consumption because we have a consumer economy-70% of it anyhow. And we “print up” the money to pay for oil and goods. The benefits of being a “Reserve currency”. As a result, the bad effects of declining oil supply are mitigated. I think this will continue maybe for a decade or so. I hesitate to speculate how many more rabbits can be pulled out of the hat. This is my own personal view and I’m open to other views.

Makati1 on Thu, 25th Sep 2014 8:34 pm

jmb, a decade? No, I think 2020 will see us looking back at the event. Those of us who come through it, that is. We will either be in or just past a world war that ended most everything we had previous. Or, by collapse, all countries will be leveled to 3rd world status. No empires, no dominance, just survival.

That is the positive scenario. The negative leaves a world without a chance of homo sapiens and most higher life forms surviving. I hope we can avoid that one, even if it means losing 90% of the human population.

The air is so full of ‘black swans’ that they barely have room to flap their wings. A list of trouble spots, failed economies, and psycho leadership would fill a small book. From re-war in Iraq, to Ebola, to drought in California, etc. I spend 4-5 hours daily trying to keep up, but I have been forced to limit my reading to the hottest spots and ignore the other 90% or at least just skim their info.

I comment here to test my thoughts and to consider the thoughts of others. We have a group here from at least 8 or 10 countries, and thoughts to match. Too bad there are not more from outside North America.

Davy on Thu, 25th Sep 2014 8:36 pm

The question I ask is what will break the camel’s back first. Will it be Liebig’s law of the minimum in regards to energy? I am sure when liquid fuel shortages start the dark period begins. Will we see confidence evaporate causing a financial collapse? The current financial arrangement is so fragile its collapse will surely initiate the dark period. What is interesting is this financial collapse could free up significant energy supplies depending on the collapse degree, duration, and reboot level by eliminating energy intensive lifestyles and industries. Yet, we know here that event would most likely end any hope of other expensive new energy from coming to market. A financial collapse would surely wreak havoc on the food supply. Food shortages will lead to failed states which would be an initiator of the dark period. There are many other black swans. I just mentioned the ones that I see as the most dramatic and drastic in the scope of havoc. Yet, we know how the littlest things develop into large uncontrollable contagions. We are currently in a time in history where we are incredibly vulnerable to anything that could destroy our ability to maintain and grow complexity. The fundamental issue is delocalization of locals for us personally. For nations it is a similar issue with loss of national independence in the face of integration to the global network. So locally and nationally we have codependence to a globalism that is fragile to failure and brittle to change. What we do have is an incredible momentum that is pushing us through the waters of collapse but with increasing resistance. One thing we don’t have is time without time there is no change that can be initiated. It is too late and we are too far from home so to speak. There is no turning back the clock in our situation. There is only a breakup of the ship on reentry to the reality of species carrying capacity. Many of us will not make it through reentry. Hell, no one is getting out alive anyway so should we be whining? My biggest issue is with the kids. The suffering of youngest of us bring sadness to me. I am in my 50’s so the coming descent could be an incredible adventure albeit dangerous, ugly and painful. But I can have an attitude and look at it like a terminal illness with disposition to enjoy what remains. Maybe I can even be heroic in my own small little world. For the kids it is not like that. They just won’t understand the ugly and painful. That is the real tragedy

Norm on Thu, 25th Sep 2014 8:40 pm

No need for other views, cause you spoke truth. About misuse of reserve currency. Good to know .

Kristen on Thu, 25th Sep 2014 8:52 pm

Ten years ago on this site many enthusiastically proclaimed we wouldn’t have electricity in the year 2015. Anything can happen and anything will. I cannot see into the future, not even simply tomorrow. I only hope for the best outcome that effects all of mankind.

Davy on Thu, 25th Sep 2014 9:22 pm

Let us hope Kristen we can find a critical mass of attitudes like you mention or any hope is lost. At least in the beginning the descent can be cushioned if we as a global people work together and for each other in aggregate. Maybe we can net out the bad blood with overwhelming good blood. So much vital global infrastructure will remain and be needed cooperation is a must. I realize different locations will be destroying what is needed for survival in civil wars and mass looting. I just hope enough locations avoid an incongruous juxtaposition type situation of a “modern” stone age. It could be the worst of both worlds. Modern poisons and Stone Age abilities at mitigation. Anyway I am of the thinking people will realize there is strength in togetherness. Many will find high levels of spiritual attainment by being part of something greater when we find lives really depend on it. Many times during those times people become selfless and face death heroically. So maybe with the nasty and ugly there will be the higher angles of our species set lose.

Nony on Thu, 25th Sep 2014 11:07 pm

They will keep learning how to do it faster, better, cheaper. Look at all the improvements so far…that none of the peakers predicted.

Makati1 on Thu, 25th Sep 2014 11:22 pm

Nony, there have been no ‘improvements’. Nothing you see today is new, it is just being used in desperation. Fraking, printing money, resource plunder, wars. All old methods used now to try to stave off the inevitable collapse. Oil sands and shale were known about long ago and the methods are not new either. Just barely practical now that oil is $100.

We have not been saved by these desperate measures to keep BAU for another few days, months, years. We have been made worse off by the pollution, destruction of ecosystems and economies in the process. Renewables are nothing more than band-aids on a dying patient. Ditto printing money and resource wars. ALL wars today are about resources/money/power. We now live in the inner circle of Dante’s Hell, having passed through the other eight already…

Welch on Thu, 25th Sep 2014 11:52 pm

Careful Kristen, the doom here is infectious.

Makati1 on Fri, 26th Sep 2014 2:47 am

For those who are not familiar with Dante’s Inferno, his rings of hell are:
1. Limbo (Outer circle)
2. Lust
3. Gluttony
4. Greed
5. Anger
6. Heresy
7. Violence
8. Fraud
9. Treachery, our current level and the center of his hell. They pretty well describe the Western world today.

That’s an interesting outer circle, limbo. I presume that is the disenfranchised from the mortgage meltdown/oil 147 a barrel/08 almost collapse. In limbo waiting for things to get better or collapse I suppose.

My wife and I were out shopping today at a mall in Santa Rosa, CA, and there was traffic just like the old days before 08. Thousands filling the roads going somewhere.

I have the impression those that did not become disenfranchised are somewhat battled hardened, better able to handle higher prices for most things. It’s rare to see a smile and even rarer to hear laughter from adults these days here. They have a defiant, determined, dull look in their faces yet move forward with purpose. Should be interesting to see what their demeanor transitions to once shtf.

Davy on Fri, 26th Sep 2014 5:20 am

Perk, here in the Ozarks where people were once poorer and still are relatively poor that look never changed. People’s lives have gotten better sure but nothing like east coast, west coast, and Sunbelt. The locals who get wealthy like the hot girls move out of these rocky hills to greener pastures. Perk, you are right about the traffic. When I go to St. Louis I am amazed by all the driving and how full the stores are. It is all surreal to me knowing what I know from what we talk about here. I imagine we as a people are going to have to go from 180 miles an hour down to 20. Our system just can’t throttle back like one would believe is normal. Normal is if you are going too fast slow down. We as a people can’t slow down. Not only is the system geared that way our minds have changed. People have issues with slowing down. They get bored and uncomfortable like they are missing out on something. Everyone is wrapped up in the future and with all those MSM ads that say we need to be on the beaches in Mexico. This is why my firm belief is a crisis needs to hit that will allow a descent that is manageable in degree and duration but does not knock us all the way into the Stone Age. We need to be on war footing like people used to get. We need people to be scared for good reason. We still have the resources, just barely, to transition to something resembling civilization. Now is the time before the food and fuel shortages begin. I know this cannot be a managed de-growth type crisis. The system is incapable of this. The only way we will manage the fall of the paradigm of descent is a full blown black swan crisis.

Jerry L on Fri, 26th Sep 2014 5:24 am

Maybe us baby boomers will soften the blow. We will soon be too rickety to drive our cars any distance or to travel on long airplane flights. Furthermore we will be simply dying in larger numbers which should also bring down the demand for oil. I seriously wonder at what age people peak in their use of energy that is fossil fuels?

meld on Fri, 26th Sep 2014 5:42 am

I think many are missing the larger picture to peak oil. Since the 2007/2008 peak in conventional oil we’ve had a global financial crisis, dropping living standards, bail outs, global uprisings, food prices rising, the formation of a new global enemy that will soon enough begin capturing oil supplies in the middle east and begin attacks on oil infrastructure around the world and finally the murmurings of a new cold war with Russia. This my friends is called catabolic collapse and has has been written about continually for nearly 8 years by John Michael Greer of “The Archdruid report”. Anyone who has followed his work over that time period will know that his writings have been the most accurate over the last decade by a country mile.

Davy on Fri, 26th Sep 2014 5:47 am

Jerry, you have a point with the demographic shift. Older people naturally slow down. Yet, I see the problems squarely with the baby boomers. They feel entitled by all those years of hard work and making money. They also have the attitude they don’t have many years left so they are going to enjoy them while they can. This is especially true with the 1%er baby boomers. You look at most of the really high net worth baby boomer people and they are smart enough to know there are serious problems but they also know their clock is ticking. I am sure many worry about the grandkids but they figure the kids will get their money when they are gone. So, basically the top down baby boomers with most of the real power and wealth have no interest in change. This is not an American phenomenon but it is generally a developed world phenomenon. The third world has a different demographic wedge. This is where the Arab Springs are popping up. Too bad it is too little too late and with no idea how to fix things. I guess if nothing else it feels good to throw rocks but at this point is not going to solve anything.

Davy on Fri, 26th Sep 2014 6:09 am

I am with ya Meld.

rockman on Fri, 26th Sep 2014 6:12 am

“…cheaper…” New math – $90 < $30. Yep…makes sense now. LOL.

marmico on Fri, 26th Sep 2014 6:37 am

“…cheaper…” New math – $90 < $30. Yep…makes sense now. LOL.

Remember the old math of this chart when you under the knife for joint replacement. 🙂

Davy on Fri, 26th Sep 2014 7:47 am

When you get old M there won’t be joint replacements. You will just have to use a cane.

Tom Servo on Fri, 26th Sep 2014 9:06 am

When you read “conventional oil”, realize that means “oil produced by 1930’s production methods, which is all that people outside the business are capable of comprehending.”

When you read “unconventional oil”, realize that means “oil produced by modern production methods, which completely blows the minds of the people who predicted “peak oil” because it has destroyed all their theories and proven that all of their fretting was nonsense.”

JuanP on Fri, 26th Sep 2014 9:42 am

Perk & Davy, Here in Miami Beach it’s as if there never was a crash. Yeah, Davy, it’s totally surreal. Like walking around tripping, it seems a hallucination.
Everyone dining out and shopping like there’s no tomorrow. Highrises going up all over the place, and most property prices at an all time high. People are flipping properties here again!
Collapse is going to be horrendous for the people around me, for all 10 million of them.

shortonoil on Fri, 26th Sep 2014 9:46 am

As all eyes watch the Peak liquid hydrocarbon ticking time clock of doom, as it will be announced to us by the EIA, another, and just as perilous nemesis lurks just out of sight. Since 1975 the value of a barrel of oil to the general economy has declined by 54%, and it continues to decline by about 2.4% per year.

Even if some miraculous event were to occur, and world liquid hydrocarbon production was to skyrocket to many times it present number, it would do little to prevent the day when the oil age comes to its end. The value of petroleum to power our civilization is declining. Like a magician’s trick, we are deceived into watching the right hand, as the left hand pulls the rabbit out of the hat. As the trickster depletion dons its long black cape we wait in anticipation for the next magic show. If it occurs, it too will be nothing but a deception!

Davy “This is especially true with the 1%er baby boomers. You look at most of the really high net worth baby boomer people and they are smart enough to know there are serious problems but they also know their clock is ticking. I am sure many worry about the grandkids but they figure the kids will get their money when they are gone. So, basically the top down baby boomers with most of the real power and wealth have no interest in change. This is not an American phenomenon but it is generally a developed world phenomenon.”
You can expand that rule to apply to Latin American 1%ers, too. Almost all the people I know in Uruguay are 1%ers down there. Most of my family and friends included.
Imagine if people in Missouri lived in the state all their lives and all the Missouri 1%er kids went to the same three schools, generation after generation. That is what the Uruguayan 1%er world is like. I played with kids just like our parents and grandparents had done it as kids. All our families have known each other for generations.
That attitude you described in your comment is the main reason I left my country. You just described my mother!

marmico on Fri, 26th Sep 2014 10:14 am

Since 1975 the value of a barrel of oil to the general economy has declined by 54%, and it continues to decline by about 2.4% per year.

Fantastic. It’s known as an increase in standard of living. As an approximation, national income has doubled per barrel of oil.

Northwest Resident on Fri, 26th Sep 2014 10:22 am

“It’s known as an increase in standard of living.”

How is a decline in energy per barrel of oil an increase in standard of living?

Back in 1975, the average barrel of oil provided far more energy than today’s average barrel of oil. The reason why is because back in 1975, a barrel of oil was a real barrel of oil, not a barrel of fracked liquids — some of which is oil, some of which is paint thinner and all kinds of other stuff.

All these bozos crowing about “oil gluts” and increased barrel count due to the “miracle” of the American shale oil boom are conveniently leaving out one crucial fact, and that is, today’s definition of a “barrel of oil” includes grain alcohol, fracked liquids of all kinds — and provides FAR less energy than 1975’s “barrel of oil”.

marmico on Fri, 26th Sep 2014 11:18 am

Hill is talking about the inverse of energy intensity, specifically the oil component. When the growth rate of energy consumption units is lower than the growth rate of income, you have a higher standard of living relative to consumed energy units.

Only Hill knows the reason for his odd way to describe energy intensity improvements.

synapsid on Fri, 26th Sep 2014 1:59 pm

jmb:

“All the other countries in the world have to pay for their oil in $s.”

Oil is priced in dollars, yes, but are transactions in other currencies going on?

In 1975 one barrel of crude (API 30-45) delivered 3.432 million BTU to the end user. One barrel of the same crude in 2014 can deliver 963,000 BTU to the end user. This also comes from calculations using EIA data.

In all our analysis we have tried to use the best data sources available. The two above are far superior to the opinion of some brain dead troll cruising the internet.

Short, 3.432 million vs. 0.963 million is a remarkable difference, but I am confused because you said “the same crude”. What is the reason for the difference? Are you talking about net energy?

Richard on Fri, 26th Sep 2014 4:40 pm

Hmm, I’m fifty, fifty. I know there is a problem. But I first read and watched clips back when google video existed and youtube about this energy crisis, and a lot hasn’t happened as it was portrayed. I guess dramatisation can’t be taken too seriously.

ghung on Fri, 26th Sep 2014 5:11 pm

“…and a lot hasn’t happened as it was portrayed. I guess dramatisation can’t be taken too seriously.”

Gosh, Richard, did you know back then that oil would stay around $100/barrel and that the Fed would pump $trillions into the economy? I doubt it occurred to most of us that our central banks would take such extreme and reckless actions to keep the game going a little longer, but double/triple the price of anything and someone will find a way to get more of it, at least for a while. The bill hasn’t been paid yet; probably never will be.

Ask yourself what would have happened to oil production if the Fed and the government hadn’t bailed out the banks and markets. Ask yourself if the same folks, like Nony, who are so busy lauding this ‘energy revolution’ aren’t the same folks who loudly oppose government intervention in the markets.

shortonoil on Fri, 26th Sep 2014 6:27 pm

“Short, 3.432 million vs. 0.963 million is a remarkable difference, but I am confused because you said “the same crude”. What is the reason for the difference? Are you talking about net energy?”

In 1975 it took 742,000 BTU to extract, process, and distribute a barrel of crude. In 2014 it will take 3,134,000 BTU to accomplish the same thing from the same 5.88 million BTU content oil. The reason is entropy production in the system. We see this as increasing well depth, increasing water cut, and lower quality petroleum. When I say the “same crude” we use the a standard. According to EIA reports the API of the world’s oil production between 2000 and 2005 was 35.7 deg. We use that as a benchmark value. These numbers also include what is called “waste heat”. During the combustion process some heat is lost to the environment. For 35.7 deg. crude that is a minimum of 29% of the energy content of the oil. That value increases as the crude gets lighter. To get a better idea of what is happening go to “commentaries: The Energy Factor Part II” at the site.

Peak Oil will happen , but not now or for at least 20 years. Heres the reason. Right now many oil producing countrys are reassessing their oil reserves and finding there is more they can do to produce more oil.

Mexico for example just passed laws to allow the western oil majors back in the country to drill and produce this will most certainly produce more oil.

Iran still has much oil production that is shut in due to sanctions. Iraq still has some untapped potential if they can keep the country stable enough to produce it.

Lets not forget to mention Canada still has 1 million barrels a day of expected increased production of tar sands oil.

And when all this is said and done lets not forget that if American companies can produce shale oil and shale gas here they can do it in China, Canada, and everywhere else on the planet that has deposits of this same type of oil. Even if those countries lack the technology to do it if the world needs oil they will allow Exxon and whoever else there to produce it. Also Artic Oil will be another addition to unconventional oil production.

Now having said all this YES peak oil will still happen in the future we can see the progression from conventional easy oil to difficult, deep sea, tar sands, shale oil and gas, but to think that 3-5 years we’ll be hurting for oil is silly. As we go forward Oil may continue to remain elevated in price $90-$120 a barrel to encourage the investment needed to produce this additional oil supplies, but it will be produced. It will be produced even if it is produced at a loss, because after all companies can borrow massive amounts of money for low interest and produce oil even at a loss by incurring debt. And governments can print money to cushion the loss.

So don’t think that the global economy will fall apart without a fight oil runs the world and the rich will find a way to power their wealth creation, their greed assures it…

synapsid on Sat, 27th Sep 2014 2:45 pm

Mak,

Thanks. That’s what I was referring to, all right.

FloridaGirl on Sat, 27th Sep 2014 8:35 pm

Short, thanks for the info. Do you know where there is a graph of World Net Oil Energy? There seems to be a lot of double bookkeeping in the numbers used now where oil in one category is used to produce oil in another category (or the same category). The underlying economy knows the difference (net energy supply now shrinking). I know quite a few people who complain that they don’t make as much money as they used to.

To lend credence to Short’s numbers, you can look at the SEC filings of companies specializing in shale oil. I looked at the SEC filing statements of several companies that have been in the business for a while and focused primarily in Bakken shale oil, namely KOG, CLR and WLL. I figured they would be motivated to make the situation look as good as they could in their filings and yet be legal. Also, it essentially is a realistic average of the good producing wells with the not so good producing wells. It’s been a few months since I looked, but what I saw was that while they may appear to be profitable, they do it by depreciating the drilling costs slower than what is reflected in the decline rate of the wells (I imagine they depreciate based on conventional wells). If I compared the cost of drilling plus production, it exceeded the income from sales of oil and gas. All 3 were increasing their debt substantially. Some even listed that a possible inability to borrow more was a “risk” item.

The well costs ranged between $9-$10 million each.

The 2013 oil price was about 93% of “NYMEX average”, so I assume that reflects the lower energy content in the light oil.

I thought about why they would continue in a money losing business, and realized that the people running the companies are making lots of money; it’s the lenders and investors who are going to eventually lose out big time. Included in the SEC filings are reports of insider’s cashing in their stock options to the tune of millions of dollars per transaction.

Another interesting tidbit from the SEC filings is that the planned 2014 capital expenses were about the same as 2013. So I think their oil production will still increase, but at a much slower rate (it’s still a lot of drilling).

Their well production average was only in the range of 50-100 barrels/day/well.

Given that the Bakken shale oil appears to cost more than it returns, I wonder if the EROEI is really lower than people think. Especially if you consider total energy like the energy for employees to travel long distances to work in ND, plus that energy involved in building their housing and heating the housing. That all takes energy and is reflected in the overall costs to the company (paying employees more).

Davy on Sun, 28th Sep 2014 6:26 am

Florida, you are in fact correct on the nature of the profits and cost. We are individualizing the profits to a few and institutionalizing the costs to many. In this case it is all those inventors large and small in this bubble market. Shale is a bubble within a bubble. Who knows where these debts have seeped into when Wall Street gets ahold of them. They have a way of synthesizing risk and mixing it up in new and more complex instruments there by spreading the risk to other areas. This in fact is a hidden contagion waiting to explode in unexpected places. The shale debt is significant and dangerous. I will also mention this market behavior centering on the shale gold rush has distorted our energy markets to the point we are scaling back in other areas that could leave us vulnerable when a shale bust comes. I have to be fair and balanced this Wild West Ponzi behavior has actually stabilized the systematic risk from what could have been declining global oil supplies. This is true at least for a few short years. It is debatable if a crash a few years ago would have been overall better than a crash a few years from now. Folks that is what liquid fuel shortages will do when they hit a global system at the limits. For me personally the added years has greatly enhanced my prep abilities. So I can’t be completely critical of the shale gold rush personally. Yet, lies, deceit, market manipulation, and profits to a few loss to many is wrong. In today’s world does it matter anymore? These rich people will lose all these ill-gotten profits when the bottom falls out anyway.